Encouraging Individual Contributions to Candidates and ...



Encouraging Individual Contributions to Candidates and Political Parties

David B. Magleby

Department of Political Science

Brigham Young University

david_magleby@byu.edu

Prepared for delivery at the Election Reform Agenda Conference, Department of Political Science, University of Iowa. May 7-9,2009

Encouraging Individual Contributions to Candidates and Political Parties

David B. Magleby[1]

Brigham Young University

The sources of funding for candidates and political parties have long been seen as a potential source of corruption and therefore subject to government regulation. At the same time our democracy values freedom of expression and the ability to contribute money to candidates or political parties has been seen as one means of exercising First amendment rights.

Money given to candidates and party committees can come from multiple sources including individuals, corporations, labor unions, other organized interests, and the candidates themselves. In policy and the law the sources of funds have been treated differently. Individuals, for example, under the most recent campaign finance reforms could give a candidate for federal office $4,600 in 2007-08 for the primary and general election campaign combined. A political action committee (PAC), which often represented many individuals, in the same cycle, could give a candidate for federal office a total of $10,000 for the primary and general election campaigns. The individual contribution limit for individuals was doubled and for the first time indexed for inflation in the Bipartisan Campaign Reform Act (BCRA) which passed in 2002 and took effect in the 2004 election cycle.

BCRA’s authors self-consciously wanted to elevate the role of individuals vis a vis organized interests, or PACs. “Congressional reformers designed BCRA to sever the link between big soft money givers and elected and party officials, as well as to stimulate growth in individual contributions by raising contribution limits…”[2] It also wanted to restore the sense of limits on what any given individual or interest group could spend in a particular race.

The courts have also long seen individual donors as less likely to be corrupting of politicians than organized interests. In its decision on the constitutionality of BCRA it referred to a series of prior rulings when it said, “Our treatment of contribution restrictions reflects more than the limited burdens they impose on First Amendment freedoms. It also reflects the importance of the interests that underlie contribution limits--interests in preventing ’both the actual corruption threatened by large financial contributions and the eroding of public confidence in the electoral process through the appearance of corruption.’[3] We have said that these interests directly implicate ‘the integrity of our electoral process, and, not less, the responsibility of the individual citizen for the successful functioning of that process.'[4] . Because the electoral process is the very ‘means through which a free society democratically translates political speech into concrete governmental action,’[5] contribution limits, like other measures aimed at protecting the integrity of the process, tangibly benefit public participation in political debate.’”[6]

Some money from organized groups has for more than a century been seen as unacceptable to be given to candidates or political parties. Examples of money that may not be contributed include corporate or union general treasury funds, and money from individuals who are not U.S. Citizens . The ban on corporate money has been in existence since passage of the Tillman Act in 1907,[7]and the ban on union general treasury funds dates to the Taft Hartley Act in 1947.[8]

Candidates and political parties have understandably sought to raise the money that was easiest to raise. For incumbents that has typically been from PACs. In 2006 House incumbents received 40% of their funds from PACs, as opposed to only 14% for House challengers. Open Seat Challengers received 25% of their funds from PACs.[9] Other ways party committees and their allied elected official’s bypassed limits on contributions were to create a new category of money called “soft money.” Modifications to the post-Watergate limits on contributions from individuals and groups to political party committees were modified in 1979 and in subsequent FEC rulings to allow unlimited contributions to party committees for “party building purposes.” By 1996, such “purposes” had come to include candidate specific electioneering, and by 2000 and 2002 more than $500 million in soft money was raised and spent. BCRA effectively banned soft money and has successfully reoriented candidates and party committees to raising “hard money” from individuals and groups.

Individuals, groups and party committees all now enjoy a common status in the law allowing them to spend unlimited amounts for or against a candidate or party as long as that expenditure is independent. Permitting such independent expenditures was justified by the courts in its rulings as balancing freedom of speech with the government’s legitimate purpose in limiting corruption.[10] But the level of involvement by individuals in contributing to candidates and party committees has varied by the level of office being sought, and as noted by the kind of candidate seeking contributions. But there has been a consistent preference shown for individual contributions at the federal and state levels. This essay examines the post-BCRA surge in individual contributions to candidates and party committees, past efforts to encourage individuals to contribute, and what some of the salutary benefits of this form of political engagement might be.

The Post-BCRA Surge in Individual Contributions

A legislative intent of BCRA was to direct candidates and party committees more towards individual donors, especially since BCRA banned party soft money which had come to be used to promote or oppose particular candidates in competitive federal races. The way BCRA encouraged a greater emphasis on individual donors was by doubling the individual contribution limits previously in place under the Federal Election Campaign Act (FECA) and indexing these higher limits to inflation, something FECA had not done. The most efficient way for party committees to raise money thus became going after donors who could contribute the maximum allowable.

This strategy has worked well for party committees and several presidential candidates. Table 1 presents the total national political party receipts and the receipts from individuals for the 2000-2008 period.

(Table 1 about here)

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Money raised from individuals represents a very large proportion of all money raised by party committees. In 2007-08, for example, 88 percent of money raised by the DNC and RNC came from individuals, while between two-thirds and three-quarters of the money raised by the DSCC and NRSC came from individuals. A majority of money raised by the DCCC came from individuals in 2008 and closer to two-thirds of the money raised by the NRCC came from individuals. In terms of contributions to party committees, PACs and organized interests play a much lesser role than individuals. This is especially true since soft money was banned by BCRA. The data reported in Table 1 is only hard money. While party committees have years that are better or worse than others, the overall trend has been upwards in terms of money raised from individuals.

To what extent to party committees rely on large vs. small donors? Table 1 provides data to answer this question. BCRA not only raised the individual contribution limits for money given to candidates but increased the aggregate contribution limits as well. The aggregate contribution limit for an individual in 2007-08 was $108,200.[11] Within that limit an individual can only give in the aggregate $42,700 to candidates. The party committees for wealthy donors thus had an opportunity to raise more money from individuals.

Contributions at the maximum allowed by the law have risen substantially since 2000. Looking at presidential election years, the DNC raised $11 million in “max out” donations in 2000 that figure rose to $43 million in 2004 and dropped a bit in 2008 to $41 million. The RNC in 2000 raised $12 million from these “max out” donors , $61 million in 2004 and fell to $37 million in 2008. This decline may reflect the disappointment of major donors in McCain’s nomination for the presidency. The Democratic congressional campaign committees have substantially outperformed their Republican competitors in “max out” fundraising. In 2008 the DSCC raised $26 million form “max out “donors compared to $12 million at the NRSC, and the DCCC raised $15.6 million compared to the NRCC’s $2 million.

But what about small donors to the political party committees. This type of donor was emphasized by the Republicans in the period after passage of FECA and for many years they outperformed the Democrats among small donors. The data in Table 1 show the t the RNC retains its advantage among donors giving $200 or less to the party committee, the exception being 2004. The Democratic Congressional campaign committees, however, now are at or near parity with the Republicans. The surge in individual contributions to the DNC in 2004 was an early harbinger of the expanded role small individual contributions would come to play in 2008. Ellen Moran who ran the DNC independent expenditure operation in 2004] stated that “the surge in individual contributions to the DNC is particularly striking as it brought ‘three to four times’ more money than expected.”[12] While the growth in individual contributions to the political parties is important and runs counter too many who predicted the demise of the parties with BCRA’s soft money ban, [13] the surge in individual contributions to the candidates has been even greater.

BCRA, as noted, provided an incentive for party committees to target donors able to “max out” to the party committee, and by doubling the individual contribution limit it meant for people with income sufficient to allow them to give $4,600 to a candidate they now could. But it did nothing to change the incentives for small donors to give to party committees of candidates. Even without changes in the law, small donors have come to be much more important in presidential campaign finance. The surge in small individual contributions appears to be driven in part by issues, in part by charismatic candidates who reach particular types of voters and in part by technology, especially the use of the internet as a means of making political contributions. There were some early harbingers of this in the 2000 campaign, especially in the John McCain’s reported fundraising via the internet. The success of in raising money especially in 2004 when they raised $21 million, much of it through the Internet,[14] and the Howard Dean’s campaign also in 2004, and were additional early indicators that individuals would be willing to contribute to candidates and groups via the Internet. When John Kerry accepted public funding for his general election campaign he invited individuals to give to the DNC. As shown in Table 1, the DNC in the 2003-04 election cycle raised $166 million in small contributions from donors who gave $200 or less to the committee. For the first time the DNC surpassed the RNC in money from donors making contributions at this level.

More than any other candidate, Barack Obama’s campaign was successful in raising money both from individuals making at or near the “max-out” levels. He received over 50% of his itemized contributions in amounts over $2,000.[15] Obama’s success in raising money, especially early in the campaign, from individuals making contributions of near the “max out” level or more was been underreported in the media and provided a needed foundation for his campaign.

Obama’s extraordinary success in raising money from individuals giving him in the aggregate $200 or less was unprecedented. The protracted nomination battle helped Obama develop a larger donor base as did his skillful use of technology and creative messaging. Figure 1 provides a graph of the percentage of Obama and McCain’s contributions that did not exceed the $200 FEC reporting threshold by reporting period.

Figure 1

Small Individual Contributions to McCain and Obama by Reporting Period

[pic]

Source: Bob Biersack, Deputy Press Officer, Federal Election Commission, email communication

with David Magleby, March 4, 2009.

NOTE: The vertical line near the beginning of September 2008 indicates the approximate date of

the national party conventions.

4

The Obama success in raising money from individuals in small amounts and often over the internet was not limited to fundraising. Rather the strategy saw giving money as one of many ways individuals could become engaged in the process. Other modes of participation included attending events, talking to friends about Obama, volunteering at an Obama office, calling people from a list provided by the campaign writing a blog post, creating internet multimedia, and joining Obama groups on social networking sites.

Securing contributions from individuals, including many new donors was not isolated to Obama. Another 2008 candidate who raised substantial sums from individuals, often in small amounts over the internet was Ron Paul. The Paul campaign generated news coverage, including coverage on popular media, such as Stephen Colbert, John Stewart, The Ellen Show, The Tonight Show, with their surprising success in fundraising, what they called “money bombs.”[16]

What the Paul and Obama campaign had in common was a confidence in the new technologies, a willingness to decentralize fundraising and invite people to involve others in financing the campaign. Both candidates started with a strong anti-Iraq war base, a compelling message, and a young and innovative campaign staff willing to take risks and try new approaches. Overall Paul raised 61% of his money from small donors, by far the highest proportion, but others also did well among small donors in the nomination phase of the campaign: Fred Thompson (43%), John Edwards (36%), Mike Huckabee (35%), and Barack Obama (32%). It may be the case that other candidates will pattern their fundraising after the Obama and Paul success stories from 2008, but it may also be beneficial to consider a set of incentives that could be given to individuals to contribute to candidates or political parties.

Providing Incentives for Individuals to Contribute to Candidates and Political Parties

Public policy often creates incentives for desired behaviors. Examples include favorable tax status for retirement accounts, college savings accounts, and tax deductibility for home mortgage insurance or tax credits for insulating homes or buying fuel efficient automobiles. At the state and national levels, governments over time have experimented with providing incentives for candidates and party committees to raise funds from individuals and also for individuals to contribute to candidates or political party committees. This paper is not intended to be an exhaustive examination of these incentives over time but rather to provide examples of approaches that might be taken to encourage candidates and party committees with incentives to raise money from individuals making small contributions and for individuals to contribute to candidates or party committees.

The current presidential public financing law for the nomination phase is an example of a law that creates an incentive for candidates to raise money from individuals, and especially from individuals making contributions of up to $250. [17] For most of the history of the Federal Election Campaign Act, candidates routinely accepted the public matching funds for presidential primaries. Before 2004, Candidates who did not participate were Steve Forbes in 1996 and 2000, John Connally in 1980,and George W. Bush in 2000. Since 2000, candidates have been more likely to not accept the matching public funds but the reasons for that include the state-by-state spending limitations that come with accepting the matching funds, especially with the front-loading of caucuses and primaries meaning candidates must compete in places before they have received the federal match;[18] and the fact that the cost of running has far outpaced the static amount provided in matching funds.[19]

Even with these limitations, the matching funds have provided important added revenue to candidates. Matching funds are sometimes used by the media as a sign of candidate viability. Finally, as Wayne Steger notes that the most important aspect of matching funds is the spending limits that they placed on both weak and strong candidates, helping to level the playing field and allow dark horse candidates to compete more effectively.[20]

For individuals, the match provides an incentive to give. It means for up to $250 they contribute they are doubling their support of their preferred candidate. As with matching programs in fundraising generally, this often is an incentive to get people to give.[21] Neither the federal government nor the states have extended the match to individuals giving to political party committees but many of the same motivations for individuals to give may extend to political parties. Political parties play vital roles in the functioning of our electoral democracy. They organize the competition, recruit and train candidates, and help voters understand the choices before them. Extending the match for small individual contributions to political parties might help build stronger parties and foster greater electoral competition. Thirteen states provide an income tax check off for parties.[22]

The federal government for a time and some states continue to provide incentives for individuals to give to candidates or political parties. FECA, for example, provided a federal income tax credit for half of the contribution to a candidate. The maximum credit was $12.50 in 1971 and $50 (on a joint return) in 1978. The policy goals of this program were to reduce the effect of large donors and corporations and increase the role of small, individual donors in the system.[23] This may have encouraged individuals to contribute. There was an increase in money raised from small donors until the soft money surge came after 1996. The federal income tax credit for individual contributions was abolished in 1986 as part of Ronald Reagan’s overhaul of the tax code, with the stated purpose to reduce tax shelters and simplify the overall system.

One problem with the tax credit is that the donor does not receive the reimbursement on the contribution until taxes are paid in the following year. Minnesota has a program which provides a more immediate contribution refund. The program allows individuals who have donated to candidates and parties who agreed to limit expenditures to file for an immediate refund of their contribution. The maximum refundable amount is $50 for individuals and $100 for couples. Political Scientists Robert G. Boatright, Donald P. Green, and Michael J. Malbin conducted experiments on tax credit programs in Ohio in the 2002 election cycle. They sent mailers to individuals to encourage them to take advantage of the Ohio law that permits a $50 tax credit to those who contribute to state candidates. They found a modest increase in giving that seemed to come from the added information. They continue, “even a small increase in the pool of small donors can yield significant overall effects.[24]

Some contend that tax credits should be reintroduced as a way to increase individual giving. David Rosenberg, whose 2002 book Broadening the Base discusses this topic extensively, argues that tax credits for political contributions are one of the fundamental approaches to reform overlooked by , BCRA’s sponsors. Rosenberg posits that “a well-crafted tax credit for political contributions can be a cost-effective and sound method for helping balance the influence of big money donors in the American electoral process.” He also asserts that tax credits “encourage many candidates to seek the small, local contributions that are almost universally valued in our political system.”[25]

Encouraging Political Contributions as a Means of Fostering Greater Political Engagement

Contributing money to a candidate or political party is only one form of political engagement. Does contributing more money to candidates or political parties foster other forms of political engagement like higher turnout, greater interest in elections and politics, or in engaging in other forms of volunteer activity like working on a campaign, persuading others to vote, or helping a party to more effectively communicate with citizens.

Past donor studies have shown a significant correlation between donors to political campaigns and other types of political behavior, but it remains unclear whether donating causes individuals to become more “invested” in the process? Or is it just that those already invested in the process donate? Indeed, a good amount of scholarship has gone into what Schattschneider might have described today as the “upper-class accent” of the donor population. If those who give to campaigns are systematically different from the general populace, are the uncharacteristic opinions of a minority shifting public opinion in the wrong direction?

In studies my colleagues and I are doing on 2008 we hope to explore the relationship between giving money to a party or candidate and other forms of engagement. Those who contribute are likely already predisposed to participate but in 2008 the numbers of young and possible not previously fully engaged voters is such that we may learn more about the positive benefits of contributing money. It may also the case that participation in ways other than giving money helps individuals to decide to give money.

Conclusion

The marriage of the Internet, candidate appeal, issues, and effective messaging in 2008 helped propel Barack Obama to record setting levels in individual contributions. There appear to have been benefits to the campaign from individuals not only giving money but becoming more engaged in other ways as well. It is not clear that what happened in the Obama campaign is applicable to candidates seeking other offices but it may be, especially if candidates and party committees could offer incentives to people to make contributions. As the Obama campaign apparently discovered, once a person has given the campaign can engage them in other activities and often in making additional contributions.

Encouraging individuals to contribute to candidates and political parties is important as our electoral democracy requires resources. The hopeful lessons of 2008 suggest that fostering a culture of individuals investing in candidates and parties can yield additional benefits to our political system. At a minimum we should encourage wider experimentation with different types of incentives and also invest in public information campaigns so people understand the program and its benefits.

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[1] Some of the data reported is drawn from a research project funded by the Pew Charitable Trusts and the Carnegie Corporation of New York. I gratefully acknowledge the assistance of Bradley Jones, David Lassen, Virginia Maynes, and Case Wade in preparing this paper.

[2] Robin Kolodny and Diana Dwyre, “A New Rule Book: Party Money after BCRA,” in David B. Magleby, Anthony Corrado and Kelly d. Patterson, eds., Financing the 2004 Election (Washington D.C.: Brookings Institution Press, 2006), 188.

[3] National Right to Work, 459 U. S., at 208; see also Federal Election Comm'n v. Colorado Republican Federal Campaign Comm., 533 U. S. 431, 440-441 (2001) (Colorado II)

[4] National Right to Work, supra, at 208 (quoting Automobile Workers, 352 U. S., at 570)

[5] Shrink Missouri, 528 U. S., at 401

[6] McConnell v. Federal Election Commission, 540 U.S. 93 (2003).

[7] 34 Stat. 864 (January 26, 1907).

[8] 61 Stat. 136 (1947).

[9] David B. Magleby et al., Government by the People (New Jersey: Pearson Prentice Hall, 2008), 164.

[10] Buckley v. Valeo, 424 U.S. 1 (1976) and Colorado Republican Federal Campaign Committee v. FEC, 518 U.S. 604 (1996) (Colorado I).

[11] Federal Election Commission, FEC Announces Updated Contribution Limits, January 23, 2007, , accessed on May 1, 2009.

[12] Ellen Moran, DNC, interview by David B. Magleby, Washington D.C., December 16, 2004

[13] Seth Gitell, 2003, “The Democratic Party Suicide Bill,” Atlantic Monthly 292 (1): 106-13; Raymond La Raja, 2008, Small Change: Money, Political Parties, and Campaign Finance Reform (Ann Arbor, MI: University of Michigan Press); Sidney Milkis, 2003, “Parties Versus Interest Groups,” in Anthony Corrado, Thomas E. Mann, and Trevor Potter (eds.), Inside the Campaign Finance Battle: Court Testimony on the New Reforms (New York: Brookings Institution Press).

[14] MoveOn was created in 1998, in part to get the country to “move on” from the Clinton-Lewinsky and Clinton impeachment issues. In 2000 it raised $2.3 million for a broader agenda, including advocacy.

[15] David Magleby, Bradley Jones, and David Lassen, “Turning the Tables: Individual Contributions, Member Contributions, and the Changing Campaign Finance Environment,” The Berkeley Electronic Press (2009), 7.

[16] Jesse Benton, Director of Communications for Ron Paul Campaign, interview by David Magleby, December 11, 2008.

[17] If the candidate to whom the contribution has been given has raised at least $5000 in at least 20 different states.

[18] William G. Mayer, 2009, “An Incremental Approach to Presidential Nomination Reform,” PS: Political Science and Politics 42: 65-9.S

[19] Anthony Corrado, as quoted in Nelson W. Polsby, Aaron Wildavsky, and David A. Hopkins, 2007, Presidential Elections (Lanham, MD: Rowman and Littlefield).

[20] Wayne P. Steger, “Do Primary Voters Draw from a Stacked Deck? Presidential Nominations in an Era of Candidate-Centered Campaigns,” Presidential Studies Quarterly 30 (4): 727-53.

[21] Catherine C. Eckel and Philip J. Grossman, 2003, “Rebate Versus Matching: Does How We Subsidize Charitable Contributions Matter?” Journal of Public Economics 87: 681-703; John A. List and David Lucking-Reiley, 2002, “The Effects of Seed Money and Refunds on Charitable Giving: Experimental Evidence from a University Capital Campaign,” Journal of Political Economy 110 (1): 215-33.

[22] The states are: Alabama, Arizona, Idaho, Iowa, Kentucky, Maine, Minnesota, New Mexico, North Carolina, Ohio, Rhode Island, Utah, Virginia.

[23] Thomas E. Mann, 2003, “Linking Knowledge and Action: Political Science and Campaign Finance Reform,” Perspectives on Politics 1: 69-83.

[24] Robert G. Boatright, Donald P. Green, and Michael J. Malbin, “Does Publicizing a Tax Credit for Political Contributions Increase its Use?: Results from a Randomized Field Experiment” American Politics Research 34 (2006) 578.

[25] David Rosenberg, 2002, Broadening the Base: The Case for a New Federal Tax Credit for Political

Contributions (Washington, DC: American Enterprise Institute).

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